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Before television, people used to go to the watch Variety Shows at theatres for entertainment.

One of the key characteristics of such a show is that as the show progresses, the acts should get better and better.

The headline act goes on last because they are so good that they cannot be followed.

So if someone cracks a great joke or tells an amazing story, the expression, "Follow that!" is an imperative or challenge to improve on the joke with an implied assertion that it you cannot because it was so good.

If you are on a bill of performers and the preceding act is better than yours then there is no greater hell; for you or the audience.